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Categoría: News

  • How to manage the departure of a partner in the family business

    Every company sooner or later faces the departure of a partner. And it does not necessarily have to be the consequence of a major disagreement in the decisions of the board of directors or the family council. Sometimes it may be due to a change of opinion about the viability of the business in a new socio-economic environment or simply personal reasons. In family businesses, a partner may want to leave simply because his or her professional vocation leads him or her to sectors far removed from the one in which the family business operates.

    The exit of a partner is part of the life cycle of any company and does not have to be a conflict. However, it is true that exit processes in family businesses are often complicated. In this type of company, the exit process is orderly in only around 50% of cases. In 25% of the cases, the exit has to overcome a more or less conflictive negotiation. And in 25% of cases, the partner who wishes to leave the family business does not even manage to do so.

    Better to be safe: the procedure for the departure of a partner in the family protocol

    For this reason, it is best for the family business to make provision in the company documents and family protocols for what to do in the event of a partner’s departure. Thus, there should be orderly, clear and balanced procedures for conflict resolution and liquidation of shares or holdings. The priority should be to conduct any possible exit process in an amicable manner, preserving the value of the family business and the relationships between people.

    At the other extreme, the family protocol should not contain excessively rigid clauses that prevent partners from leaving or use the dominant position of the majority to force the minority partner to sell his or her shares at too low a price. These are relatively common situations in family businesses. Because from their very conception, their fundamental objective is to keep ownership in the hands of family members. Many family protocols restrict the free transferability of shares and stockholdings in order to avoid the dispersion of capital in the hands of third parties. And yet, at one time or another, all family businesses have to face the departure of one of their partners.

    When one of the family partners expresses a desire to leave the company, an empathetic effort must be made on both sides to reach a win-win outcome.

    The mission of the family protocol is to guarantee a future for the company in which all family members participate. Although it may seem counter-intuitive, it is the best way to ensure the future of the family business. Because if a fair remuneration for the shares is foreseen, conflicts are avoided and the company’s viability is not jeopardised.

    How to value the shares of the outgoing shareholder

    In addition, it should be remembered that the right of separation guarantees the right of shareholders to voluntarily terminate their relationship with the company and to be reimbursed for their shares.

    Reaching an understanding on the valuation of the shares of the partner leaving the company is difficult. This is because tangible and intangible assets of a going concern are involved in the valuation. If the parties do not reach an agreement on the fair value of these shares, the Commercial Register will appoint an external auditor to clarify this.

    If you want to draw up a protocol for your family business that foresees all aspects of the possible departure of a partner in a non-traumatic way, Confianz can help you.

  • Insolvency proceedings soar, but express insolvency proceedings are falling

    As expected, the end of the bankruptcy moratorium, the consequences that many companies still carry from the COVID-19 crisis and the difficult political and economic situation worldwide have triggered the number of insolvency proceedings in recent months.

    Between January and October, 5,879 Spanish companies started insolvency proceedings. This figure is 19% higher than in the same period in 2021 and 60.5% above pre-COVID levels. If we go back further, it is the highest figure in the last 8 years. You would have to go back to the first ten months of 2014, in the throes of the previous financial crisis, to find more insolvency proceedings in the first ten months of the year (5,941).

    The new insolvency law, which came into force at the end of September, has begun with a high volume of activity. In October, 896 insolvency proceedings were declared, 53.1% more than in 2021 and a figure not seen since 2013.

    By sector, the most affected in the first ten months of the year was commerce, with 1,398 procedures (+36.3%). It is followed by construction and real estate activities (1,138, +25.1%). And the third most affected sector is hotels and catering (691), although in its case the number of insolvency proceedings has fallen by almost 13% with respect to 2021.

    Bankruptcy moratorium ends 

    We are facing a perfect storm situation which explains the increasing number of companies filing for bankruptcy.

    On the one hand, the moratorium on insolvency proceedings ended on 1 July. Companies in insolvency once again had only two months to file for bankruptcy. Since March 2020, they had enjoyed a temporary waiver that was put in place to protect companies affected by the economic crisis caused by COVID-19. This reduced the number of insolvency proceedings declared to levels prior to September 2004, when the now defunct Insolvency Act came into force.

    The ICO credit gap ends

    On the other hand, two crises, almost intertwined, are hitting the business fabric hard. High energy and production costs have put many companies on the ropes. And rising interest rates are making it very difficult to refinance debt.

    Finally, the end of the grace period for many ICO loans is causing many companies to have to repay these loans when they have not yet fully recovered.

    For all these reasons, the trend in insolvency proceedings over the coming months looks set to continue to rise. According to Informa D&B forecasts, the year is likely to end with more than 7,000 insolvencies declared.

    The good news: express insolvency proceedings are on the decline

    After little more than a month in force, it is still too early to assess the results of the new insolvency law, whose priority objectives include facilitating restructuring processes and prioritising the rescue of viable companies. However, its effects can already be seen, for example, in the large reduction in the number of express insolvency proceedings.

    This type of insolvency proceedings, which combine simultaneously the request for insolvency proceedings and the request for the company’s extinction, have been experiencing sustained growth over the last few years. However, in October they fell to 40%, 36.5 points less than in the previous month. In 2021, they accounted for 65% of the total and in the first nine months of this year they had not fallen below 65.5%.

  • The judicial debt register is now more streamlined

    The General Council of Spanish Lawyers (CGAE) has just presented a pioneering functionality in its debtors’ file. The Registry of Judicial Unpaid Debtors (RIJ) has thus become the most guaranteeing in the notifications to the debtor.

    This new service will allow corporate lawyers to claim any debt free of charge. It does not matter if a final court decision has already recognised the debt. Nor does it matter whether the debt is in the process of being judicially settled or has already been settled. In the latter case, the only condition is that its existence or amount is not being disputed by the debtor in the judicial proceedings.

    Free order for payment and free notification 

    The Spanish Bar Association’s Registry of Judicial Unpaid Debts now offers a new way of publishing debts in the RIJ Credit Information System. With this new method, the prior payment request and the notification of inclusion can be made directly through the court. Thus, the creditor company has three options for doing so, free of charge:

    • In court proceedings.
    • Through demand.
    • In a subsequent procedural

    One of the main advantages is that, by claiming and notifying debts through the courts, the risk of suffering sanctions and compensation for violating the affected party’s right to honour is reduced.

    Faster and cheaper

    Until now, and since the launch of the RIJ in 2019, the registered letter or burofax has been the way to carry out notifications.

    In view of the general increase in delinquency, this new functionality optimises the service for the reduction and prevention of non-payments of the Spanish Lawyers’ Credit Information System (Sistema de Información Crediticia de la Abogacía Española). It speeds up the work of lawyers and maintains all the legal guarantees in the process of notifying the debtor. It also saves time and money.

    Thus, the aim is to avoid future risks of non-payment and to prevent default. Companies, the self-employed, individuals and financial institutions can consult the information published in the CGAE’s file of defaulters. This information is available through its strategic partner, Informa D&B, and the multinational Experian.

    A legal revolution for legal default

    The CGAE has just presented this new possibility at the 17th Legal Congress of the Legal Profession held on 27 and 28 October in Málaga. In her speech, the legal manager of the RIJ, Reyes Rodríguez Zarza, explained that «the Supreme Court has stated in numerous rulings that in order to presume the lawful processing of personal data in debtors’ files it is a requirement to have requested payment from the debtor with the express warning that if they do not pay they may be included in these files«. Although «neither the law nor case law establishes the means by which such a communication must be made, they do require that it be receptive (that the means used allows the delivery to be accredited)», warned Rodríguez Zarza.

    In conclusion, the head of the RIJ emphasised that «the possibility of notifying the debtor of the payment demand in a receptive manner, by means of a simple written document, represents a legal revolution and an unprecedented novelty in the form of communication required by the Supreme Court before the debtor is included in a default file, making the RIJ an essential working tool to reduce and prevent default, in a particularly complicated economic context».

  • How Amazon is organising its succesful M&A strategy

    Amazon has recently been buying companies in large transactions. The company wants to grow beyond e-commerce and cloud computing, and to achieve this it moves quickly when it thinks it will make a clear profit from acquiring another company.

    One example: in 2015, Amazon acquired the Israeli chip manufacturer Annapurna Labs for 359 million euros. This allows it to build its own chips for the data centres run by Amazon Web Services and thus reduce their cost.

    Amazon’s biggest acquisitions in the las two years

    For most of its 28-year history, Jeff Bezos’ company has prioritised organic growth. However, this changed in 2017 with the purchase of Whole Foods for approximately 14 billion euros, the largest deal in the company’s history so far.

    From that moment on, Amazon changed its strategy, and in the last five years it has closed 7 of its 10 most expensive deals. In fact, in the last year and a half alone, the company has made its three biggest purchases after Whole Foods: the media company MGM for 8.5 billion dollars, the private clinic chain One Medical for 3.9 billion dollars and iRobot, the company that created the famous hoover Roomba, for 1.7 billion dollars.

    The objective of this acquisition strategy is to maintain Amazon’s scalability. M&A deals are a way to maintain the company’s historical annual growth of over 20%.

    Amazon’s three principles for company acquisitions

    Acting swiftly

    Amazon far outpaces its competitors in terms of speed. For a purchase worth millions of dollars, its simplified organisational chart requires the approval of just two executives. Meanwhile, companies like Google or Samsung involve more than five executives.

    Even in the case of large acquisitions, such as the recent acquisitions of iRobot and One Medical, Amazon is able to close them in a single month. Once negotiations have started, moving quickly is essential for Amazon. The reason is that the longer they last, the more likely it is that a leak will drive up the price.

    However, this does not mean that the company acts unthinkingly. Before submitting an offer, Amazon takes its time to study the market carefully and decide what it wants to buy.

    Seizing the moment: the iRobot example

    Amazon’s M&A team never enters into price wars. It keeps price expectations low from the beginning of the deal and always looks for undervalued assets.

    For example, Amazon first approached iRobot in 2016 with an offer that the home automation manufacturer rejected as low. Amazon bid its time and came back last May, when iRobot announced that it had missed quarterly expectations and cut its forecasts. As a result, its shares plunged 23%. This decline came on top of a 50% drop since February 2021 due to supply chain problems.

    Amazon took advantage of the circumstances and its financial muscle to offer iRobot a quick buyout for $61 per share, a price virtually identical to what it had offered six years ago.

    Preferably buy in cash

    Whenever possible, Amazon prioritises cash rather than shares. The company headed by Jeff Bezos foresees that its shares still have great growth potential. And this despite the fact that they have already almost tripled in price over the last five years.

    The last substantial equity deal was that of online shoe retailer Zappos in 2009, worth around $1.2 billion.

  • The right of the shareholder to withdraw from the capital company

    The right of withdrawal is a protective mechanism for minority shareholders in a limited liability company, as it guarantees their right to voluntarily terminate their relationship with the company. This is always subject to certain circumstances.

    In a capital company, several partners pool money and other assets in order to carry out a business activity and make a profit from it. Corporations, limited liability companies and limited joint-stock companies belong to this group of companies.

    When a partner has the right to separate

    Article 346 of the Capital Companies Act establishes that shareholders have the right of separation when any of the following causes occur:

    When the company changes the activity it engages in

    If there is a substancial change or replacement of the object of the company, the partners who do not agree have the right to separte. A number of additional conditions must be met for this:

    • A shareholder who wishes to exercise his right of separation must not have signed the agreements determining the grounds for separation.
    • The changes must have been published in the Official Gazette of the Commercial Register or communicated in writing to each member who did not vote in favour of the resolution.
    • From the date of publication or receipt of the communication of the new resolution, the shareholder who wishes to exercise his right of withdrawal has a period of thirty days in which to request it.

    When there are conflicts with the distribution of dividends

    The distribution of dividends is often a source of disagreement between shareholders. The right of withdrawal arises if at least 25% of the profits for the last five years have not been distributed. The shareholder must record his disagreement in the minutes and exercise his right of withdrawal within one month from the date of the meeting.

    The idea is that, although it is up to the general meeting to decide on the distribution of dividends, the dissenting minority shareholder can assert his will with the separation and subsequent redemption of his holdings or shares.

    There are, however, exceptions to this assumption:

    • Companies in insolvency or pre-insolvency proceedings.
    • Sports limited.
    • Listed companies on trading systems.
    • Companies that have reached refinancing agreements.

    When the company is extended beyond its expiry date or when a dissolved company is reactivated

    Many limited partnerships have an expiry date, at which point they cease to exist. If it is decided to extend the partnership beyond that time, dissenting partners have the right to separate.

    Similarly, in the case of a dissolved partnership that is reactivated, partners who do not agree may leave the partnership

    When ancillary services are required 

    A change in the conditions of social benefits is also a valid reason for separation.

    According to the conditions laid down in the statutes

    In addition to the provisions of the Capital Companies Act, each company is governed by its own articles of association. These may provide for grounds for termination of membership, the form of proof of such grounds and the procedure and deadline for enforcing them.

    The redemption of the separating partner’s shares

    When a shareholder leaves the company, he is entitled to receive a refund for his shares. If no agreement on the fair value of these shares is reached between the partners, an external auditor appointed by the Commercial Register is called in at the request of the company or any of the partners.

  • The restructuring expert in the new insolvency law

    One of the most notable new features of the new Insolvency Act is the introduction of a new auxiliary figure: the restructuring expert. In this article we review their functions and the appointment process.

    Functions

    The first thing to know is what are the functions of this new figure who is now involved in insolvency proceedings. The restructuring expert acts as a mediator who promotes negotiation between the parties. He also helps inexperienced debtors and facilitates judicial decisions when disputes arise between the parties. In addition, in the case of non-consensual plans, he prepares a report on the going value of the company.

    How the restructuring expert is appointed

    Articles 672, 673, 676 and 678 of the Insolvency Act provide that the restructuring expert in insolvency or preinsolvency proceedings is appointed by the judge. He may only do so in two cases:

    • When requested by the debtor or a majority of the creditors.
    • Autonomously, when it deems it necessary to safeguard the interests of creditors or when judicial approval is sought for a restructuring plan that has effects on third parties who have not voted in favour of it.

    Tasks of the restructuring expert

    Among his or her knowledge, skills and abilities, the restructuring expert must be able to detect the warning signs of early insolvency. In this regard, we cannot forget that the Insolvency Act transposes Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019, the fundamental objective of which is to offer bankruptcy prevention or early warning services.

    In order to increase the efficiency of restructuring, insolvency and debt discharge procedures, the expert must be able to predict difficulties, restructure the organisation pre-emptively and adapt it to the market. To this end, some of his main concrete tasks are to analyse the company’s financial situation and financial statements and to draw up viability plans and growth strategies. He also implements financial solutions, restructuring and continuity measures. He evaluates compliance programmes and implements risk control systems.  Finally, it advises on early warning systems, such as foreclosure and insolvency proceedings.

    Skills of the restructuring expert

    In order to carry out all these tasks effectively, the restructuring material expert must have specialised legal, financial and business knowledge, such as:

    1. The rules applicable to each specific case of insolvency proceedings.
    2. Early warning and early intervention.
    3. The duties of organisational.
    4. Risk control.
    5. Compliance programmes.
    6. The execution of a financial analysis.
    7. The implementation of a feasibility plan.
    8. The valuation of organisations.
    9. What is restructuring or refinancing and what does it consist of.
    10. The implementation of possible financial solutions.
    11. The implementation of growth strategies.

    What is the profile of the restructuring expert?

    According to Article 674 of the new Insolvency Law, the restructuring expert must be a «natural or legal person, Spanish or foreign, who has specialised legal, financial and business knowledge and experience in restructuring matters or who proves that he or she meets the requirements to be an insolvency administrator in accordance with this law».

    In practice, this means that the restructuring expert becomes a profession. No qualification or compulsory registration is required to practise this profession. However, this new insolvency law will require qualified professionals and experts in insolvency proceedings.

    At Confianz we have extensive experience in insolvency law. Do not hesitate to contact us if you have any questions on this subject.

  • What are the tax benefits for family businesses?

    The family business is an institution in Spain. It is estimated that up to 1.1 million Spanish companies are family businesses, which represents a staggering 89% of the total. In addition to being the majority in total numbers, they also account for 57.1% of private sector GDP and are responsible for 67% of private jobs, with almost 7 million jobs. That is why they enjoy some tax benefits.

    Globally, family businesses are the organisations with the highest turnover and job creation. In the European Union alone, it is estimated that there are 14 million family businesses generating more than 60 million private sector jobs.

    The family business in the legal system

    Despite this obvious importance for the economy, there is no express recognition of family businesses in the Spanish legal system. However, we do find references to this type of company in certain tax regulations that reserve certain advantages for them. We will review them in this article.

    Wealth Tax 

    Family businesses benefit from some tax advantages in the Wealth Tax. To do so, they must meet certain requirements:

    • To dispose of 5% of the company’s capital individually, or 20% jointly by the family group.
    • A member of the family is involved in its management and the remuneration for this work represents at least 50% of his or her total business, professional and personal income.

    If these requirements are met and the entities are not merely holding assets, the shares held in these family companies are exempt from Wealth Tax.

    Likewise, the assets and rights common to both members of the couple are exempt, when they are used in the development of the business or professional activity.

    Inheritance and Gift Tax 

    Inheritance and Gift Tax also establishes state reductions in the case of inheritances or gifts of shares in family businesses. In this case, as the tax is devolved to the Autonomous Communities, it is necessary to review each specific case because there are also autonomous reductions.

    The transfer by inheritance or donation of family businesses enjoys a 95% reduction in Inheritance and Gift Tax. The requirements for this are:

    • The company must carry out an economic activity. In the case of holding companies, those that have the personal and material means to manage their holdings are considered to be carrying out an economic activity. In the case of companies that lease real estate, it is advisable for them to have at least one full-time employee, provided that the number of properties leased and the difficulty of their management justify it.
    • As we have seen in the case of Wealth Tax, the shareholding of the owner in the transferred entity must be at least 5% computed on an individual basis, or 20% at the level of the family group.
    • As in the case of wealth tax, the transferor or one of the members of the family group must exercise management functions and receive remuneration representing more than 50% of his or her business, professional and employment income.
    • The acquirer must keep the shares for between five and ten years, depending on the autonomous community. Only in the case of inheritances can they sell them and use the money received to open a fixed-term deposit, buy another company or invest in investment funds without losing the bonus. However, if you sell them and use up the money received, you will have to repay the tax credit you have received.

    The specific taxation of family businesses and the differences between autonomous communities make it highly advisable to establish tax strategies for the transfer of the company, succession or entry into the management and governance of the company. Professional advice from a consultancy firm specialising in family businesses such as Confianz is essential.

  • M&’s value

    In mergers and acquisitions (M&A), the valuation process of the target company plays a key role in the ultimate success or failure of the deal. In order to calculate the value of a company, it is essential to use an accurate and reliable method that takes into account all variables and gives a fair idea of what the target company is worth.

    What is the valuation of a company in mergers and acquisitions?

    The economic valuation of a company is carried out by means of a set of analyses of its quantitative and qualitative characteristics with the aim of translating them into a monetary expression. The result takes the form of a more or less reduced range of values within which the real economic or shareholder value of the company, as objective as possible, will be found.

    Knowing the valuation of a company is of great importance for making the best strategic decisions in financial market listings, private equity investments in unlisted companies, loan applications and especially in mergers and acquisitions.

    From the value, the final price is determined, taking into account external variables such as the rigidity or fluidity of equity capital, ongoing concentration processes within the sector, the efficiency of financial markets. As for external variables, the most common are the transparency of communications and the credibility of the commercial strategies implemented and revenues.

    4 Methods for valuing a company

    There are several different methods for calculating the value of a company. Here are four of the most common ones:

    The book value

    The book value reflects the company’s balance sheet. It is calculated by taking the total balance of the company’s assets and subtracting its liabilities.

    The value of each share or interest can then be determined by dividing the book value by the number of shares or interests.

    The liquidation value

    The liquidation value is the minimum value of a company and is equal to the sum of the individual parts. To calculate it, individual assets such as property, machinery, inventories, etc. are valued at realistic market prices. The company’s debts, mandatory provisions and liquidation costs are then deducted.

    The sales multiple

    It is a common method in mergers and acquisitions, as it is a good way to check whether the purchase price of the company to be evaluated is realistic. To calculate the sales multiple, the purchase prices of similar companies that have recently been sold are taken into account. We analyse for what multiple of profit or turnover they have been sold for and apply the same factor to the company we are evaluating.

    Price Earning Ratio (PER)

    The Price Earning Ratio (PER) measures the ratio between the share price and the earnings per share. It refers to the total number of times the profit is contained in the price of a share. In other words, a PER of 5 means that the initial investment will only pay off after five years of accumulated profits.

    The PER is calculated in two ways:

    • PER = Market value of the company (number of shares x share price) divided by net profit.
    • PER = market price of the share divided by the earnings per share (EPS).

    Do you need advice on the valuation of your company in order to sell it? You can count on the support of the M&A experts at Confianz.

     

  • CONFIANZ and FVEM reach an agreement on advisory services for member companies

    CONFIANZ and the Bizkaia Federation of Iron & Steel Companies (FVEM, in its Spanish acronym) have reached an agreement by virtue of which CONFIANZ has become the go-to advisory provider in fiscal, accounting and commercial matters for the latter’s member companies.

    FVEM is an umbrella business organisation for companies in the Iron & Steel Industry in the province of Bizkaia, which in turn is a member of the Bizkaia Business Confederation (CEBEK) and the Basque Business Confederation (CONFEBASK). It offers its members a raft of services, which include advice on fiscal, accounting and commercial matters, which are now to be provided by CONFIANZ, a firm that specialises in a comprehensive advisory and consultancy service for businesses and business organisations, with a commitment to reinforce its clients’ prospects for successful growth and continuity. It is also involved in holding lectures on subjects of interest to FVEM members, such as the one delivered on 31 January this year under the heading “The best structures for the corporate planning of SMEs”.